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CoM lobbies for 25pct tariff, govt injection

Sikonathi Mantshantsha | Fri, 22 Jan 2010 17:16

[miningmx.com] -- THE SA Chamber of Mines (CoM) has called on the government as a shareholder to take responsibility for Eskom’s recapitalisation and to provide the electricity utility with R7bn/year in order to avoid the 35% electricity tariff increase.

“The South African economy cannot absorb the 35% tariff increase requested by Eskom,” said the CoM’s Dick Kruger.

“The government should make a cash injection of R7bn for each of the next three years in order to take the tariff increase to 25% this year.”

Kruger was speaking at the National Energy Regular (Nersa) hearings to discuss an application by Eskom to lift tariffs 35% a year for three years. This is in order to meet some R385bn in capital expenditure over the next five years.

An earlier application to have tariffs lifted 45% a year over three years was withdrawn.

Kruger said a 25% tariff increase over the next three years “will be much more manageable and will cause much less damage” when compared with a 35% increase in the same period.

Kruger further criticised the proposed 35% increase and said having expensive electricity at the rate of 147% (Eskom’s initial application) was as bad as having no electricity at all.

The job losses that would result from a 35% yearly increase would mainly come from mines that have a lifespan of less than ten years.

"Electricity in the large scale underground mines, such as gold and platinum mines, is a substantial operating cost and a vital ingredient to providing a sustainable environment for mining activity and for processing activities," he said.

"Preliminary modeling work by the Chamber based on surveys of members and based on industry analysis show that over three years, a 35% price increase will force those underground mines located at the upper end of the cost curve to either restructure or close," he said.

Electricity price hikes without a coherent integrated resource plan was “putting the cart before the horse

Earlier in the hearings, AngloGold Ashanti said a lower tariff might be sustainable for the mining industry particularly if a partner could be found for Kusile, one of the power stations Eskom is hoping to build.

But the Energy Intensive User Group, which represents Eskom's top clients, said many of the benefits of part privatisation of a power station had already been removed. The attractiveness of investment in power stations related to cost benefits that could be derived in the planning stage, but Kusile had already been planned.

Integrated Resource Plan

Kruger added that determining the electricity price hikes without a coherent integrated resource plan was “putting the cart before the horse”, Sapa reported.

Kruger said the resource plan – as set out in the National Energy Plan – was still in its rough form and yet to be revised.

“The revised energy plan... is still not in place. The multi-year price determination without final resource plans and energy plans is very hard," he said.

Gold Fields said a “broad-based tax is preferable” for funding South African power utility Eskom’s expansion, reported Bloomberg News citing a presentation given to Nersa by Gold Fields CEO, Nick Holland.